Economist likes Connecticut's forecast, with caveats

Dr. Nicholas Perna said that overall the national and state economies are looking pretty good. He was speaking at the annual East of the River Chambers of Commerce Association Economic Forecast Breakfast on Feb. 3. Photo by Steve Smith.

Dr. Nicholas Perna said that overall the national and state economies are looking pretty good. He was speaking at the annual East of the River Chambers of Commerce Association Economic Forecast Breakfast on Feb. 3. Photo by Steve Smith.

At the East of the River Chambers of Commerce Association's annual Economic Forecast Breakfast, Dr. Nicholas Perna –Economic Advisor to Webster Bank, former economics professor and frequent consultant for economic matters for local and national media – said things look positive, overall, for Connecticut and the U.S. in the coming year, but there are some factors to which businesses and individuals will want to pay attention.

"Things are looking pretty good," he said, "in the U.S. economy, and in Connecticut."

Jobs grew by 3 million nationally in 2014, compared with 2.3 million in 2013. Inflation was also very low - .8 percent - Perna said, adding that the trend has continued for about 6 years. While that doesn't mean it will permanently stay that low, the trend should continue.

"It's going to be low for a while," Perna said, adding that the GDP will grow some and the unemployment rate will drop to near 5-percent by 2016. "Inflation will be 1.5-percent this year, and closer to 2 next year, as oil prices come back."

In Connecticut, about 26,500 jobs were created in 2014.

"It sounds like a huge number," Perna said. "It's really just more than 1.5 percent, but it's a good number. It's always better to have some more jobs than no jobs."

Perna said that while Connecticut is growing almost as fast as the national average, the state still has a lot of lost ground to make up. The forecast is for up to another 35,000 jobs in 2015. Perna said there are two caveats, however, to the forecasts..

"That's very dependent on what happens nationally," he said. "The other one has to do with whether or not getting rid of the [state] deficits for 2015 and 2016 will do any damage."

Perna explained that the current deficit is much smaller than the one that Gov. Malloy dealt with in 2011, which slowed the state's growth, so it may have an effect.

"It does cast a note of uncertainty," Perna said, adding that Connecticut's small businesses may want to keep a close eye on how the state deals with its deficit. "We just don't know where they are going to find the $1.3 billion," he said, adding that the uncertainty itself erodes economic growth. "[Nationally,] when Congress was flirting with defaulting on the debt a year ago, and we came close to shutting down the government, there was as plunge in consumer confidence. The average person didn't know what it meant to default on the debt, but they knew it was something nasty, and they knew that the shutdown, even though it might not effect them immediately, that it was a function of dysfunctional government. [Connecticut businesses] have to fear that it's going to show up in more taxes someplace."

"Also," Perna said, "this uncertainty is not a good advertisement when you're trying to bring in people from out of state."

Perna was also asked why, with relatively low unemployment, are employers having a hard time finding qualified, skilled employees.

He said that the policy-makers should take that into consideration, and that in the turmoil in 2008-2010, the structure of employment changed so that many of the new jobs created since then are not appropriate for the same people.

"They could be retrained," he said. "There was a big structural shift in the state and national economy, leaving a large number of people mismatched with the available jobs."

Perna said that older workers are sometimes forgotten and even discriminated against. He suggested providing shorter weeks and job-sharing, especially for older workers who may not require the benefits that normally come with full-time work, as one way for employers to think outside the box and still get quality employees.

Glastonbury Chamber of Commerce President Mary Ellen Dombrowski said that the job-sharing for older workers is something she would suggest to her Chamber member businesses.

"I like the job-sharing idea, and not discriminating against older employees who are experienced and trained and can come in and be a valuable asset," Dombrowski said. "I've had some older employees in the past, and they have a different work ethic. They want to be at work and they're very conscientious."

One way Perna suggests for the state to avoid such deficits in the future is to be frugal when there is a surplus and put the savings into a rainy day fund. There are other ways for the state to improve its situation.

Oil prices, which produced less pain at the pump, have already begun to climb back up, and that will continue, but Perna said it won't be drastic and won't have a big effect on the economy.

"If there's a small shift in the supply curve, you get a big decline in price," he said. "If there's a small shift in the demand curve, along with the supply curve, you can also get a big decline or a big rise. We've got China, Europe and Japan slowing down, so you get a big drop in prices, but don't be surprised if prices rise more in the next year or two, because it only takes a small rise in demand to change that picture."

Perna said the price of a barrel of oil, currently just under $50 per barrel, could rise to between $70 and $80 by late 2016. "That still leads to more economic growth in the United States than if we had $112 a barrel," he said.

"I think we need a positive attitude about Connecticut," she said. "I'm going with that positive attitude and that things are going up. If businesses are feeling confident and our national economist is telling us that the state is doing well, that's a really positive way to start out the new year."